Nvidia's Payment Terms Shift Raises Concerns Over Cash Flow and Concentrated Exposure

Nvidia's second-quarter earnings report exceeded expectations in nearly every way.

The company delivered revenue of $96.221 billion, beating the consensus estimate of $92 billion.

Adjusted earnings per share came in at $2.22, also surpassing the predicted $2.10.

Data centre revenue reached $89.023 billion, ahead of the forecasted $86 billion.

In a surprising move, Nvidia guided third-quarter revenue to $108 billion, up from the Street's prediction of $104 billion.

However, the company's days sales outstanding (DSO) shot up from 45 to 60 in just one quarter, indicating that it is not being paid for its products on time.

The reason behind this development lies in a deliberate decision made by Nvidia to offer extended payment terms of up to a year to certain investment-grade customers, including those buying at data centre scale.

This move has led to a significant concentration of receivable exposure, with five direct customers accounting for 70% of the $63.059 billion balance.